Petmart recently hired Jim as a consultant to estimate the company’s WACC. Jim has obtained the following information. (1) The firm's noncallable bonds mature in 20 years, have an 8.00% annual coupon, a par value of $1,000, and a market price of $1,050.00. (2) The company’s tax rate is 40%. (3) The risk-free rate is 4.50%, the market risk premium is 5.50%, and the stock’s beta is 1.80. (4) The target capital structure consists of 45% debt and the balance is common equity. The firm uses CAPM to estimate the cost of common stock, and it does not expect to issue any new shares. What is its WACC?

Petmart recently hired Jim as a consultant to estimate the company’s WACC. Jim has obtained the following information. (1) The firm's noncallable bonds mature in 20 years, have an 8.00% annual coupon, a par value of $1,000, and a market price of $1,050.00. (2) The company’s tax rate is 40%. (3) The risk-free rate is 4.50%, the market risk premium is 5.50%, and the stock’s beta is 1.80. (4) The target capital structure consists of 45% debt and the balance is common equity. The firm uses CAPM to estimate the cost of common stock, and it does not expect to issue any new shares. What is its WACC?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 8P

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